Interest rates in the euro zone remained unchanged. “There was no difference of opinion,” admitted Christine Lagarde, commenting on the ECB's decision on interest rates. She pointed to the risks related to economic growth and inflation in countries using the common currency.
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Interest rates in the euro zone remain unchanged
As expected by economists, interest rates in the euro zone remained at their current levels, the European Central Bank announced on Thursday. Rate the deposit rate in the euro zone is still 2 percent, the main refinancing rate is 2.15 percent, and the lombard loan rate is 2.4 percent.
In the new projections, inflation in 2026 is expected to average 2.6%.so it was increased compared to previous forecasts, mainly due to higher energy prices. At the same time, economic growth is expected to amount to only 0.9%, which means a significant slowdown.
After the decision was announced, the head of the European Central Bank, Christine Lagarde, spoke, discussing the current situation and answering journalists' questions.
The ECB is concerned about economic growth and inflation in the euro zone
“The risk to economic growth prospects is rather negative, especially in the short term” – she admitted, as reported by Reuters.
What about prices? “Risks to the inflation outlook are upside” she added, explaining that a prolonged war in the Middle East could lead to a larger and more lasting increase in energy prices than currently expected, which would further raise inflation in the euro zone.
See also: Calm before the storm on the labor market? The head of the ECB warns: “We will be extremely careful”
Christine Lagarde expressed her belief that the ECB is in a good position and is well prepared to ensure inflation stabilization at 2%. in the medium term. She made a clear commitment to this.
As she reported, the general mood among bankers at the ECB is calm. “There was no difference of opinion. A unanimous decision was made not to raise rates at all“- she noted.
How will the ECB react to the price shock? Christine Lagarde replies
In her speech, the head of the ECB pointed out that the external environment remains a challenge, including: in the light of unstable global trade policy, and the war in the Middle East is disrupting commodity markets and negatively affecting real incomes and confidence.
“Any fiscal responses to the price shock in the energy sector should be temporary, targeted and tailored to needs“- she emphasized.
Economists compare the current market situation with 2022.That's a huge difference” – pointed out Christine Lagarde. She said that in 2022, when the shock occurred, inflation was already 6 percent. This is a big difference compared to the current situation, where the rate is 1.9 percent.
Christine Lagarde also spoke about the necessity during her speech the rapid adoption of the rules for the digital euro. She recalled that Russia's war with Ukraine is another source of uncertainty, and defense spending will drive growth – larger than expected, also in the technology sector.
